Delta Likely to Trim Seat Capacity to Protect Fare Levels

Are Delta, United, American and Southwest colluding over seat capacity and keeping fares high? Whether it is colluding or signaling they sure are watching each others’ backs on capacity policies.

— Dennis Schaal

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Delta Air Lines Inc. may cut U.S. capacity after the summer season, reacting to concerns about an oversupply of seats and softening fares.

The carrier is reviewing capacity plans with a “bias” toward revising them downward, according to slides released ahead of a presentation Thursday. The Atlanta-based company’s current forecast calls for a 4 percent increase in the third quarter from a year ago earlier, followed by a 2 percent gain in the fourth quarter.

Delta, the third-largest U.S. airline, is considering scaling back domestic growth amid a drop in unit revenues, or passenger revenue per seat flown a mile. The airline said earlier this week that unit revenue would fall 4 percent to 5 percent this quarter, exceeding its earlier projection of a drop of 2 percent to 4 percent. The company said domestic fares are under pressure as fuel prices stay low.

Analysts had predicted that Delta and United Continental Holdings Inc. would announce plans to trim domestic growth plans this year. Both airlines are scheduled to make presentations to investors at a Deutsche Bank conference Thursday. Delta earlier this year said it would cut international capacity by 3 percent over the winter, a plan that was reaffirmed in the slides.

Southwest Airlines Co. earlier this week said it would cap growth in seating capacity at 7 percent this year, backing off a plan laid out in May to expand as much as 8 percent that helped send U.S. airline shares plunging.

The Bloomberg U.S. Airlines Index is down 11 percent this year on concerns that an oversupply seats could hurt airline fares.

Delta shares rose 1.6 percent to $43.91 at 9:59 a.m. in New York.

To contact the reporter on this story: Michael Sasso in Atlanta at msasso9@bloomberg.net To contact the editors responsible for this story: Edward Dufner at edufner@bloomberg.net Bruce Rule, Molly Schuetz

This article was written by Michael Sasso from Bloomberg and was legally licensed through the NewsCred publisher network.

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